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Implication Of Joint Venture Project Funding

By Kathleen West

The world financial system is constantly changing. Today, it is very different from what it looked like a number of years ago. The reason for these developments is the emerging trends of debt and financial management techniques invented that seek to maximize profits while at the same time minimizing losses. One of these trends is the joint venture project funding. This undertaking allows many companies to pool together their resources and fund one project. They commit to share returns, risks and capital.

This source of financing is different from the traditional partnership form of business in that it only relates to a particular type of project. Suffice to say, if the goals are achieved, the affiliation is ended. However all other aspects of the two types of business ventures are similar. What investors look for in this affiliation is the profit potential in the project. It must include a clearly defined business plan that outlines all the roles of all investors.

This undertaking ought to outline the different role required from the investors. It then has to outline how profits and losses will be shared. Because of its cost sharing aspect, it is a popular undertaking internationally as it allows entities from different nationalities to interact and do business together. It is extremely popular in the capital-intensive industries that require large outlay of capital to successfully start and operate. These include oil exploration, metal processing, mineral extraction and railway construction.

The main reason that has made this undertaking popular is the presence of investments that require a large outlay of capital to not only start but also manage. Such companies that invest in these areas of business often depend on the development of new technologies, which enable them cut down their cost of operations. By polling resources, a lot can be achieved hence allowing for exploration activities at low costs and increasing profits attained.

Recent emerging trends have seen many companies use joint ventures as a means to gain access to certain foreign markets. Such companies may not be necessarily interested in the primary project in which they have invested their money. This is because their main interest lies in the fact that they get an opportunity to gain access to the new market. However, some governments have realized this and in a bid to protect local companies, they have put a cap on the total amount of interest a foreign company can have in a local venture.

It is important to note that not all ventures involve only private companies. Some are between government agencies especially in less developed nations. Such deals seeks to improve the economies of the two countries. Either way, such ventures make it possible to make investments in certain sectors of the economy.

All companies that seek to enter into joint undertakings should have set goals and an action plan on how to achieve them. They should also be clear about their commitments and intentions to invest. This allows for transparency.

More companies are embracing this form of investment as a means to expand operations and reach more markets. It is a good way to get into new markets and expand business operations. These ventures are found in almost all nations in the world and their popularity is only increasing.

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